Portfolio
As the word suggests, students have to produce a range of work that demonstrates and, most-importantly, documents their ability to do certain things (such as produce a word-processed document or give a short presentation).
The depth and range of the portfolio differs markedly between each Key Skill and, of course, between each Level of Key Skill.
Portfolios are accessed by teachers in the first instance and qualified assessors (internal verifiers) in the second. To ensure standards are met, samples of assessed work are further assessed by external moderators / verifiers appointed by whichever exam board the school / college is registered with. In basic terms, if you're familiar with GNVQ / NVQ / BTec assessment procedures then Key Skills assessments don't depart radically from this type of assessment model).
This system should reassure those of you keen to assert the professional competence of teachers, intrigue those of you who see the many and varied ways the system is open to abuse and worry those of you prone to worrying about this sort of thing.